Central and Eastern Europe may have long left communism behind, but some of the legacy effects of that time have produced a crop of potential companies for private equity to harvest, Michal Rybovič, partner at Sandberg Capital, told PE Hub Europe. Meanwhile, more recent geopolitics are changing the investment landscape.
Headquartered in Bratislava and founded in 2014, Sandberg invests in small and medium-sized enterprises in Slovakia and the wider CEE region. It focuses on IT, telecoms, agriculture, education and retail and has €340 million of assets under management.
As the CEE left decades of communist rule in the 1990s, new companies began to form. “These businesses are now 30 years old,” said Rybovič. “From a private equity perspective, that’s a big wave and a lot of opportunities.”
Private equity can offer these companies not just capital but assistance with a range of business needs, said Rybovič. “Because of communism and the centrally managed economy, we missed two generations of managers” with experience in marketing, communications and other skills, he said. “Now, we have 50-year-old managers with experience.”
That group is part of one wave – older companies with strong economic fundamentals – while a second wave features newer companies, with founders aged 30-35, which have featured in some of Sandberg’s most recent deals.
Sandberg tends to deal with both groups in a similar way, focusing on partnerships with founders. “Usually, there are some founders who don’t want to leave,” said Rybovič. “We usually acquire a majority but still want them to have skin in the game then exit to someone bigger.”
Healed division
Enterprise software and IT outsourcing are among the most interesting sectors to Sandberg. The investment equation of some of those businesses has changed during the last few tumultuous years.
In Serbia, for instance, businesses have benefited from nearshoring in the wake of covid, including Quantox Technology, in which Sandberg invested via its second fund. The company provides local IT specialists to countries such as the US. The fact that two of the biggest providers of such services, Russia and Ukraine, have been at war for over a year, has helped such companies in Serbia win business.
Investing in Serbia may have raised a few eyebrows, as it is the only country in which Sandberg has invested that is not part of the EU. Plus, there are “rumours that it is more Russian than European”, said Rybovič. “But when we talked with business, government and regular people, they are pro-European.”
In another sign that the region has moved on, past divisions between the likes of Serbia and Croatia do not feature around the business table, said Rybovič. “In Serbia, young people don’t think of such issues. We did a deal where the founder was Serb and his advisors from Croatia. Everything was good.”
Outside investment
Sandberg usually invests €5 million-€15 million per company, but its exits can be larger.
“If you’re selling at over €100 million enterprise value, you can attract anyone in Europe,” said Rybovič. “Several UK funds are active here. We say that if you do everything well, you can attract a UK mid-sized fund.”
The macro picture is also attractive, said Rybovič. Growth rates are impressive and government debt levels are lower than in Western Europe.
“We see and feel that purchasing power, standards of living are getting better,” he added. “Universities are good and there is tech and industry talent and heritage here.”
LPs are also looking to invest, he said. “When we talk to international investors, they are hesitant, but the returns we can offer are attractive and we think will be higher than from Western investments. Ten years ago, we didn’t have any foreign institutional investors but we see some now that are early entrants.”
Like the rest of Europe, deal activity in CEE has slowed since the second half of last year, thanks to rising interest rates and valuation mismatches. Many believe that the second half of 2023 is likely to see an upsurge in activity in Europe, something that Rybovič also expects for CEE.
In the meantime, he said some sectors are still resilient, while the firm’s second fund – established in 2021 with €130 million of capital and the European Investment Fund as lead investor – is more than 60 percent deployed. The firm might fundraise next year.
“These are the standard cycles. What wasn’t standard was the cycle from 2019”, when deal activity surged, Rybovič added.
If you do not receive this within five minutes, please try to sign in again. If the problem persists, please email: 
